Salary For Wants: How Much Should You Spend?

Hey everyone! Ever find yourself staring at your paycheck, dreaming about all the cool stuff you want but wondering how much is too much to spend? You're not alone! Figuring out the right balance between needs, wants, and savings can feel like navigating a financial maze. But don't worry, we're here to help you break it down and create a spending plan that keeps you happy and financially healthy.

Understanding the Difference: Needs vs. Wants

Before we dive into percentages, let's get crystal clear on the difference between needs and wants. This is the crucial first step in budgeting like a boss.

Needs: The Essentials

Think of needs as the non-negotiable expenses that keep you alive and kicking. These are the things you absolutely must pay for each month, such as:

• Housing: Rent or mortgage payments – a roof over your head is essential.
• Utilities: Electricity, water, gas – keeping the lights on and the water running.
• Food: Groceries – nourishing your body is a top priority.
• Transportation: Car payments, public transportation costs, or gas – getting you where you need to be.
• Healthcare: Insurance premiums, doctor visits, prescriptions – taking care of your health is crucial.
• Basic Clothing: Clothes to keep you warm and presentable – essential for everyday life.

These are the foundational expenses that form the base of your budget. Skimping on needs can lead to serious problems down the road, so it's essential to prioritize them.

Wants: The Extras That Make Life Fun

Wants, on the other hand, are the discretionary expenses that add flavor and enjoyment to your life. These are the things you could live without, but they certainly make life more interesting. Wants include:

• Dining Out: Restaurant meals, takeout – delicious but not essential.
• Entertainment: Movies, concerts, sporting events – fun experiences that come with a cost.
• Travel: Vacations, weekend getaways – exploring the world is amazing, but it's a want.
• Hobbies: Gym memberships, art supplies, sports equipment – activities that bring you joy.
• Shopping: New clothes, gadgets, home decor – things that enhance your lifestyle.
• Subscriptions: Streaming services, magazines, online courses – convenient but not always necessary.

Wants are important for our well-being and happiness, but they need to be balanced with our financial goals. Spending too much on wants can derail our progress toward savings, debt repayment, and long-term financial security.

Popular Budgeting Rules: Finding Your Fit

Now that we understand the difference between needs and wants, let's explore some popular budgeting rules that can help you determine how much of your salary should go towards your wants. These rules provide a framework for allocating your income, but remember that personal circumstances and financial goals should always be considered.

The 50/30/20 Rule: A Balanced Approach

The 50/30/20 rule is a widely used budgeting guideline that suggests allocating your after-tax income as follows:

• 50% for Needs: Half of your income goes towards essential expenses like housing, utilities, food, transportation, and healthcare. This covers the basics and ensures your fundamental needs are met.
• 30% for Wants: This portion of your income is allocated to discretionary spending – the fun stuff! This includes dining out, entertainment, hobbies, shopping, and travel. This is the category we're focusing on today!
• 20% for Savings and Debt Repayment: This crucial portion is dedicated to building your financial future. It includes savings for retirement, emergency funds, and paying down debt (credit cards, student loans, etc.).

Applying the 50/30/20 Rule to Wants

Under the 50/30/20 rule, 30% of your after-tax income can be allocated to wants. This provides a good balance between enjoying life and achieving your financial goals. For example, if your monthly after-tax income is $3,000, you would allocate $900 (30% of $3,000) to your wants.

Is 30% the Right Number for You?

While the 50/30/20 rule is a great starting point, it's essential to consider your individual circumstances. If you have high debt payments, you might need to allocate more than 20% to debt repayment, which could mean reducing your spending on wants. Conversely, if you have minimal debt and a solid emergency fund, you might have more flexibility to spend on wants.

The 70/20/10 Rule: Prioritizing Savings

The 70/20/10 rule is another budgeting guideline that emphasizes saving and debt repayment. It suggests allocating your after-tax income as follows:

• 70% for Needs and Wants: This portion covers both essential expenses and discretionary spending. This requires a careful balance between needs and wants to stay within the 70% limit.
• 20% for Savings: A significant portion is dedicated to building your savings, including emergency funds, retirement accounts, and other financial goals.
• 10% for Debt Repayment: This portion focuses on paying down debt, such as credit cards, student loans, or mortgages.

Applying the 70/20/10 Rule to Wants

Under the 70/20/10 rule, the amount you allocate to wants will depend on how much you need for essential expenses. If your needs consume a large portion of the 70%, you'll have less to spend on wants. This rule requires a more detailed breakdown of your expenses to ensure you're meeting your needs while still saving and paying down debt.

The 80/20 Rule: Simplicity and Flexibility

The 80/20 rule is a simple approach that focuses on saving a significant portion of your income. It suggests allocating your after-tax income as follows:

• 80% for Spending (Needs and Wants): This portion covers both essential expenses and discretionary spending. This requires careful budgeting and prioritization to stay within the 80% limit.
• 20% for Savings and Debt Repayment: A significant portion is dedicated to building your financial future, including savings and debt repayment.

Applying the 80/20 Rule to Wants

Under the 80/20 rule, the amount you allocate to wants will depend on your essential expenses. This rule provides more flexibility but requires you to be mindful of your spending habits. If you have low essential expenses, you might have more room for wants. However, if your needs are high, you'll need to be more disciplined with your discretionary spending.

Factors to Consider When Deciding on Your "Wants" Percentage

Choosing the right percentage of your salary to allocate to wants isn't a one-size-fits-all situation. Several factors can influence your decision, including:

Your Income Level

Your income level plays a significant role in how much you can comfortably spend on wants. If you have a higher income, you might have more disposable income to allocate to discretionary spending. However, it's essential to avoid lifestyle creep – the tendency to increase your spending as your income rises. Just because you can spend more doesn't mean you should. Focus on maintaining a healthy balance between enjoying your income and saving for the future.

Your Financial Goals

Your financial goals are a crucial factor in determining your wants percentage. If you have ambitious goals like buying a house, starting a business, or retiring early, you'll need to prioritize savings and debt repayment. This might mean reducing your spending on wants to accelerate your progress towards these goals. Consider your timeline and the amount of money required to achieve each goal, and adjust your budget accordingly.

Your Debt Level

High debt levels can significantly impact your financial flexibility. If you have substantial debt, such as credit card debt, student loans, or a mortgage, you'll need to allocate a significant portion of your income to debt repayment. This might mean temporarily reducing your spending on wants to prioritize becoming debt-free. The sooner you pay off your debt, the more financial freedom you'll have in the long run.

Your Stage of Life

Your stage of life also influences your spending priorities. Young adults just starting their careers might have different priorities than those nearing retirement. For example, young professionals might prioritize experiences like travel and entertainment, while those closer to retirement might focus on saving for their golden years. Consider your current life stage and adjust your budget to align with your priorities.

Your Personal Values

Your personal values play a significant role in how you choose to spend your money. Some people prioritize experiences over material possessions, while others value security and financial stability. Think about what truly brings you joy and align your spending with your values. If you value travel, you might allocate a larger portion of your budget to vacations. If you prioritize financial security, you might focus on saving and investing.

Tips for Managing Your "Wants" Spending

Once you've determined the percentage of your salary you want to allocate to wants, it's essential to manage your spending effectively. Here are some tips to help you stay on track:

Track Your Spending

The first step to managing your spending is to track where your money is going. Use a budgeting app, spreadsheet, or notebook to record your expenses. This will help you identify spending patterns and areas where you can cut back. Many budgeting apps automatically categorize your transactions, making it easier to see how much you're spending on different categories.

Create a Budget and Stick to It

Once you know where your money is going, create a budget that aligns with your financial goals. Allocate specific amounts to different categories, including wants. Make sure your budget is realistic and sustainable. It's better to start with a conservative budget and gradually increase your spending as you become more comfortable. The most effective way to stick to your budget is by creating a written or digital one.

Prioritize Your Wants

Not all wants are created equal. Some wants might bring you more joy and satisfaction than others. Prioritize your spending by focusing on the wants that are most important to you. For example, if you love to travel, you might allocate a larger portion of your budget to vacations and reduce spending on other discretionary items.

Find Ways to Save on Your Wants

There are many ways to save money on your wants without sacrificing enjoyment. Look for deals, discounts, and coupons. Take advantage of free activities and events. Consider alternatives to expensive entertainment, such as streaming movies at home instead of going to the theater. Plan your spending and look for deals in advance.

Delay Gratification

Impulse purchases can derail your budget and lead to overspending. Before making a non-essential purchase, take a moment to consider whether you really need it. Delaying gratification can help you make more thoughtful spending decisions. Think about your goals before making a purchase.

Review and Adjust Your Budget Regularly

Your budget isn't set in stone. It's essential to review and adjust it regularly to reflect changes in your income, expenses, and financial goals. Make adjustments when your circumstances change.

Conclusion: Finding Your Spending Sweet Spot

So, what percentage of your salary should you put towards your wants? The answer depends on your individual circumstances, financial goals, and personal values. The 50/30/20 rule provides a good starting point, suggesting 30% for wants, but it's essential to consider your unique situation. By understanding the difference between needs and wants, setting clear financial goals, and managing your spending effectively, you can find a spending sweet spot that allows you to enjoy life while building a secure financial future. Remember, it's all about finding the right balance for you!